Answer to Question #229751 in Macroeconomics for Adnan

Question

Write a review on effect of fiscal policy on the economy. Artical fiscal policy economic effects

Answer 1

Solution:

Fiscal policy refers to measures employed by governments to stabilize the economy. It is a method by which a particular government adjusts its tax rates and spending levels to oversee or keep track of a country’s economy.           

The effect of fiscal policy on the economy depends on the type of fiscal policy implemented. There are two main fiscal policies which are listed below with their effects on the economy:

1.). Contraction fiscal policy  - This is implemented during a period of economic boom and it is designed to slow economic growth in case of high inflation. The government will increase taxes and cuts its spending.

 

2.). Expansionary fiscal policy – Thi is implemented during a period of recession. It is designed to boost or stimulate the economy and ensure consumer's purchasing power does not diminish. The government will lower taxes and increase spending levels.